Western Fingerprints on Uzbek Crime Racket

Tashkent wants nearly $1 billion in frozen assets back, but the state is complicit in the original corruption.

By Kristian Lasslett for The Diplomat

February 03, 2017

Through leaks, exposés, and prosecutions, we have learnt, in irregular drips, about the intimate relationship between organized crime, international terrorist rings, and the Western shopfronts they use to conceal and launder their criminal proceeds.

A sum worth nearly $1 billion has brought this picture into stark relief.

Since 2012, Gulnara Karimova, the daughter of Uzbekistan’s late president, has been embroiled in an international bribery scandal. It was reported earlier this month Swiss prosecutors traveled to Uzbekistan to question Karimova in relation to $850 million frozen by the U.S. Department of Justice – a sum stemming from a series of sham transactions Karimova allegedly employed to conceal bribes made by telecommunications firms owned by Swedish, Norwegian, Russian, and German interests.

If the U.S. Department of Justice proves that the $850 million in frozen assets are the proceeds of crimes, complex policy decisions will need to be made.

Indeed, emerging evidence outlined in a forthcoming report suggests Karimova oversaw a highly-organized syndicate whose racketeering operations were enacted through Uzbekistan’s executive, judiciary, and national security branches, each of which acted as the syndicate’s teeth.

These state institutions acted on behalf of a series of companies incorporated in the British Overseas Territories – linked to Karimova – whose financial affairs were managed by banks headquartered in the U.K., U.S., Switzerland, and Latvia.

While former U.K. Prime Minister David Cameron branded Afghanistan and Nigeria “fantastically corrupt,” there is considerable evidence to suggest countries such as the U.K. and U.S. drive the getaway car for foreign kleptocrats.

Evidence on corruption is hard to uncover. When it comes to documenting the Karimova syndicate, however, prosecutions, civil litigation, and international arbitration have disclosed that Karimova acted through a carefully curated network of envoys, fixers, and managers, using Uzbek state machinery to run protection and extortion rackets in a range of sectors.

The corporate machinery of this syndicate activity was based offshore in Gibraltar and the British Virgin Islands. British Overseas Territories have proven to be preferred hubs for kleptocrats, organized criminals, and tax evaders as they offer the privileges associated with incorporation in a legal jurisdiction underwritten by the U.K., but without the commensurate burden to conduct business in an open and transparent manner.

The U.S. Department of Justice claims Karimova’s offshore companies – held in the name of proxy shareholders – laundered the proceeds of crime through banks headquartered in the U.K., Switzerland, and Latvia, including British multinational Standard Chartered bank, which over the past decade has been fined almost $1 billion by U.S., U.K. ,and Singapore financial regulators for its role in tax evasion and money laundering; and private Swiss bank Lombard Odier, which has previously conceded that it “assisted U.S. clients in concealing their assets and income by opening and maintaining accounts in the names of non-U.S. corporations, foundations, trusts, or other entities …that it knew were beneficially owned by U.S. persons.”

Together this profitable underbelly of secrecy jurisdictions and banks were the international turbines of the Karimova syndicate. Its teeth were in Uzbekistan.

Fixers in senior government positions were used by the Karimova syndicate to organize favorable decisions from various departments, regulatory agencies, and the courts. Where executives needed to be intimidated, the country’s feared internal security force, the SNB – an agency heir to the KGB in Uzbekistan – could be used to kidnap targets, or their family members. Disobedient companies, or unwanted rivals, could be cleared out of the way through criminal charges and liquidation procedures, rubber-stamped by the courts. With SNB agents inside the judicial appointments committee and the prosecutor’s office, any display of judicial independence is easily quashed.

In one affidavit submitted to the U.S. Courts, a confidant of the president’s daughter observes: “Ms. Karimova often wrote substantial portions of the [judicial] decisions herself to make sure that they contained the exact language and ordered the precise outcome she desired.”

In another submission, an Uzbek insider warns: “We must understand we are in a country where there [is] only one law — ‘The law of the lord of the manor.’ The prosecutor is working only on the basis of instructions from someone who is in power and they could care less about the consequence of not following legal procedures.”

Failure to play by Karimova’s rules yielded disastrous consequences. Evidence tendered to U.S. Courts by Roz Trading Limited, a company owned by Karimova’s ex-husband, Mansur Maqsudi, claim security agencies imprisoned and exiled Maqsudi’s family at the behest of Karimova.

Other companies have come forward with similar accusations. Tea wholesaler, Interspan Distribution Corporation, petitioned U.S. courts with claims of kidnap, ransom, and violent expropriation. The judge remarked “the events involved in this case read more like a movie plot.”

While it is impossible to verify each of these allegations, owing to their clandestine nature, they all display a common theme: a state-hosted organized crime scheme, whose financial affairs were discretely handled abroad through Western bank accounts, held by companies incorporated in British Overseas Territories.

Now, in negotiations over the $850 million, the government of Uzbekistan argues it was the victim of this scandal, pointing to the fact that the conspirators have been arrested and imprisoned, including Karimova.

It is impossible to seriously entertain these assertions. Judges and lawyers in Uzbekistan are kept on a tight leash by the government, with SNB operatives reportedly involved in licensing and appointing bodies. Trials are marred by torture, political interference, the denial of natural justice, and opaqueness. Karimova and select allies may have been cannibalized by a predatory system, but they have not faced justice.

The Uzbek government remains systemically corrupt. Following the sham presidential elections in December, new President Shavkat Mirziyoyev wasted no time facilitating Abdulla Aripov’s appointment as prime minister. Aripov is a former deputy prime minister who faced criminal charges for his involvement in Karimova’s telecoms schemes, but seems to have escaped prosecution, as did all government officials who facilitated the crime of bribery extortion in this case. After questioning her this month, Karimova’s Swiss court-appointed lawyer reported that Karimova claims she was never prosecuted in accordance with any formal procedure.

Moreover, the evidence suggests that Western actors, including those within the United States, were well aware of, if not wholly complicit in, the ugly reality of Karimova’s schemes.

The true victims of this corruption and kleptocracy are the people of Uzbekistan, not the Uzbek government.

The $850 million in frozen assets offers a key opportunity for justice. The U.S. Department of Justice recognizes that the money should be returned to Uzbekistan – but how to do so has yet to be determined.

Returning the money to the government of Uzbekistan would be tantamount to giving the sum back to the same corrupt officials who perpetrated these crimes in the first place. The more responsible – and just – solution is to ensure that the assets are repatriated to the Uzbek people. The lack of an independent civil society and democratic infrastructure in Uzbekistan means that there is no mechanism or assurance currently that the people of the country would ever reap the benefits of the money.

Until broad-based, sustained reforms happen within the country, the recovered assets should be held in a transparent trust that is accountable to the people of Uzbekistan and that could increase in value over time.

This is the only feasible option: it not only ensures the best outcome for the Uzbek people, but it also sets a new international standard and provides a clear means to challenge impunity and bring justice to victims of corruption in other countries.

Dr. Kristian Lasslett sits on the Executive Board of the International State Crime Initiative and is the author of the forthcoming report “‘A dance with the Cobra’: Confronting grand corruption in Uzbekistan.”